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Index Your Way to Financial Success
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ltvalue
Senior |
26-Jan-2008 19:40
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khoowj, your article is very interesting. I've read a similiar finding postulated Burton Malkiel in his new book, ?From Wall Street to the Great Wall". Professor Malkiel said that it is hard to beat stock index in US or large European stock exchanges as stocks in these countries are covered by many analyst and are thus largely efficiently priced, ie fundamental analysis will not add value. However, for less efficient markets such as emerging market, or small cap companies, a SKILLED manager may produce results that beats the market. Unit trusts managed by fund house with local presence may beat the STI for 2 reason. (1) They may have the advantage of getting information of better quality then the average investors events such as management interviews can hardly be conducted by most of us. (2) The singapore stock market is less efficient. In the US, over 70% of stocks are held by institutions, and it is way lower in singapore. Many founding families still have controlling stake in local large caps. (3) STI is not a very well constructed index, an example could be it captues less then 50% of trading volume most of the time. As compared to well constructed indicies such as those supplied by MSCI or Standard and Poors. |
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ten4one
Master |
25-Jan-2008 05:38
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Alrite ngqhplala, interesting read. I think this called 'situation' play - in the rite time at the rite place. Just like the Stock Market, each situation requires different approach depending on that time. Once that time past, the situation is history! Cheers! |
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ngqhplala
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24-Jan-2008 20:12
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Anyway I was watching a Taiwanese Programme and found out something interesting. I was always amazed at how willing Taiwanese women are at splurging on branded "H" and "LV" bags but actually they are a lot smarter than we thought. Those smart women actually queue and buy those limited edition handbags and do not use them. They can queue for up to 2 years and finally when they get the bag they would sell it at double the price [plus and minus] they bought it because the demand for those bags are so great [i still wonder why]. I think it's just like trading commodities [correct me if i'm wrong] and it's actually quite smart! haha. i know it's not really related to indexing but it's just something interesting i'd like to share. i think the returns are pretty good and it's less risky than stocks/index! you actually get back 100% returns in 2 years. and you dont even need to track the market or whatever. Just need to know what bags are limited edition and join in the queue and buy [or course you must have enough capital to buy. one bag can cost up to NT 200,000, which is like S$10,000). |
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khoowj
Member |
24-Jan-2008 18:23
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Hey people, check out this article on unit trusts vs index funds/ETFs. What it states is although index funds and ETFs are cheaper, you could earn more with professionally managed funds. He compares the 10 year annualized returns of the STI with several funds. Insightful article. http://www.firstmillionchallenge.com/mutual-funds-vs-exchange-traded-funds/ |
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ltvalue
Senior |
18-Jan-2008 22:38
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dear ngqhplala , i think we should not view Indexing as a Fixed Deposit alternative, for the risk characteristic of these 2 instruments are totally different. There's a very good chance of an index falling more than 20% over a year, but as you've mentioned, this risk is usually mitigated by the time factor, aka time diversification. i don't think we should 'invest' to earn our car or house. Perhaps work and save for that, and invest for the long term. I agree totally that market in the short term is driven by emotions. look at the property counters in singapore, could the underlying value of the company really fluctuate by over 50% in a year? yet the range of stock price fluctuation is almost that much! perhaps it is this inefficiency (as mentioned by ten4one) that can also profit the disciplined value investor. |
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ten4one
Master |
18-Jan-2008 10:02
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Tradings and Market sentiments make the Stock Market dynamic. It is this inefficiency that Traders thrive with their projection tools and sometimes at random move the prices up or down. Cheers! |
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singaporegal
Supreme |
17-Jan-2008 21:24
Yells: "Female TA nut" |
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The posts below do make sense. The thinking is more in line with FA principles. I'm a TA person and I believe that the market (at least in the short term) is driven mainly by emotions. This applies to all counters, including ETFs. |
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bodobin
Member |
17-Jan-2008 15:22
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I think that indexing should form a good percentage of one's entire portfolio of investments, but not all of it. Perhaps, the retirement fund can be in the form of an Index Fund, while investments for specific uses (like car, house downpayment etc.) may be undertaken in other forms of investing - provided one has clearly understood the risk/return and is able to take the hit should markets move against him/her. Nevertheless, indexing is indeed a good way for beginners to get started in investing - putting my first investment dollars into an index fund spurred greater interest in finding out how markets work, and subsequently I have moved on to investing in other mutual funds. An account with an online unit trust retailer is easy to set up, and as students we don't have the luxury of (i) doing too much in depth research and (ii) time to sit in front of the computer screen all day, so indexing should indeed be the way to go! |
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ngqhplala
Member |
17-Jan-2008 13:41
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I was thinking.. sure. indexing is a good way of investing in the long run... and an especially good alternative to FDs to save for our retirement. However, you have to put your money in the fund for a long period of time [usually 10 to 20 years and above]. so you can only enjoy your "fruits of labour" after a long time. I was just wondering, how many 10 or 20 years does one person have? and for people who need the money for big ticket items like buying houses/ paying for children's education expenses, we surely wouldnt be able to wait till then to get the money. So are there any other good/safe alternatives for people with shorter investment horizons to grow their money? perhaps on a yearly basis? [other than investing in stocks] |
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ten4one
Master |
16-Jan-2008 12:20
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When the economy grows it is easy to grow your wealth along with the growth. You may be able to accumulate your wealth, but without any knowledge how to protect it may soon land you into financial problems. The only way is to always proctect what you've and don't let anyone move your cash and keep it simple in simple interest on top of inflation expenses. Cash always beget more Cash! Cheers! |
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ltvalue
Senior |
16-Jan-2008 10:54
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Studies done by both academics and practitioners have suggested that indexing is the simplest way to accumulate and grow wealth. Indexing is basically buying index(s) which consists of representative group of stock. The rationale behind why indexing works works is that in general, as an economy grows, corporate earnings will grow too. This earnings will ultimately be shared amongst investors (both debt and equity). If GDP grows at 3% and inflation at 2%, add in dividend yield of around 2%, most investors can expect long term return of at least 7%. Warren Buffett in an interview and in his annual letters to shareholders has advocated the index approach over active fund management approach. He believes that most investors simply have to contribute regularly to this investment and most will get satisfactory return. (Read interview here, http://www.marketwatch.com/news/story/warren-buffett-backs-index-mutual/story.aspx?guid=%7B4A899C35-02F6-42CB-BB01-7B7E303003D4%7D. With the proliferation of products such as ETFs and Index Mutual Funds, investors today do indeed have a cost effective simple method to accumulate wealth in the equity market. We should embrace it! |
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